The slow death of federal transportation funding

A new report hit the wires last week – authored by the Bipartisan Policy Center (BPC) and the Eno Center for Transportation – that posits an interesting future where U.S. transportation infrastructure is concerned: what if federal funding for such big ticket endeavors such as highways dwindles and ultimately disappears?

“Current fiscal and political realities suggest that federal transportation spending will be stagnant—or even declining—for many years,” said BPC Visiting Scholar Emil Frankel (at right). “This report, while speculative, seeks to make informed judgments about the impact of such a declining pattern of federal support for transportation investment. It is clear that, in these circumstances, the reforms that we have advocated are even more urgent.”

Frankel noted that the report focuses in particular on the potential impact of a 35% reduction in federal surface transportation funding on state agencies and transit authorities – and what might happen as a result of such a reduction.

“Our research indicates that States DOTs [Departments of Transportation], and even more so public transportation authorities, will be unable replace a substantial portion of the funds that they would lose if federal funding is cut,” noted Joshua Schank, president and CEO and the Eno Center.

Schank (at left) went on to explain during a briefing last week concerning the BPC’s and Eno’s findings that the 35% cut in federal transportation is a figure derived from what’s needed to bring spending in line with current Highway Trust Fund (HTF) revenues from fuel taxes – resulting in a reduction of some $13.8 billion in annual disbursements to the states.

He pointed out such a cut would fall unevenly on various states, as some states are more dependent on federal funds than others. For example, while 10 states rely on federal funds for less than 25% of their overall transportation spending, 27 states rely on federal funding for 25% to 40% – with 14 states relying on the feds for more than 40% of transportation dollars.

Yet C. Kenneth Orski, noted public policy consultant and 30-year veteran transportation expert, noted in a his coverage of the BPC-Eno report that such a reduction might not necessarily be a bad thing.

He pointed out that BPC’s Frankel set the stage in his opening remarks by stating with what Orski called “commendable frankness” that "current fiscal and political realities suggest that federal transportation spending will be stagnant — or even declining— for many years."

Indeed, the current program authorization - known as MAP-21 - does not resolve the long-term funding issues, he said, and instead uses additional general fund revenues to support the program over the next two years.

“In a typical discussion about the future of the federal program, transportation advocates assert the need for more funds and predict dire consequences if that need is not met,” said Orski (at right). “To their great credit, the BPC and Eno [Center] avoided following this script. Instead, the report’s authors dared to suggest that lacking a new source of funds, Congress might simply resolve the funding dilemma by shrinking the size of the federal contribution.”

Indeed, the report does not assume that a cut in federal funds would automatically lead to a corresponding reduction in spending. Rather, faced with a drop in federal funds, the states’ first response might likely be to replace at least part of the lost revenue with their own funds.

However, both the BPC and Eno Center stressed that it’s difficult to know exactly how states and transit authorities would react to a cut in federal funds, along with how the politics of raising additional revenues for transportation would play out in individual states.

Orski concluded that one likely consequence of the political inability to raise fuel taxes— a consequence that the report and the panelists did not consider— will be to end the long-term transportation authorizations as we have known them.

“There is a growing sense among seasoned political observers that the prevailing fiscal and political climate will make it difficult if not downright impossible in the future to commit hundreds of billions of dollars in a single legislative package,” he stressed.

For example, even at MAP-21’s fiscal year 2013-2014 level of expenditure, a six-year surface transportation authorization would require approximately $300 billion in funding – and HTF revenue and interest over that time frame is expected to produce only $210 billion, leaving an unfunded gap of $90 billion.

“Faced with this dilemma, and unwilling to raise motor fuel taxes, Congress is likely to embrace short-term bills as the only practical solution,” Orski contends. “Short-term authorizations, such as MAP-21 will only require modest injections of general funds, especially if, as the BPC-Eno report suggests, states will be willing to increase their own contributions.”

That would indeed represent a huge change from the past. The question is, with the swan song of federal transportation funding playing ever more loudly, can the states – and the taxpayers – successfully make such a shift?